By Andrew Moran. President Joe Biden is being pushed to do something – anything – about escalating across-the-board price inflation. While he did not initiate a consumer price index (CPI) climbing to its highest level in about 31 years, the president has contributed to the inflationary crisis with trillions of dollars in deficit-financed spending, something that he has recently admitted. But as both parties demand action from the White House, the potential remedy, price controls, could be as terrifying as grocery store prices have become, since they would inevitably exacerbate the current economic woes inflicting the post-pandemic economy.
Bidenomics Lesson Eight: Price Controls
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The Biden administration and House Democrats flirted with price controls in September as officials instituted the measure for prescription drugs. The White House proposed mandating Medicare to “negotiate” drug prices, employing an ultimatum for the pharmaceutical industry: Face a tax as high as 95% on sales if companies do not accept the government’s price. Despite claiming Washington is “negotiating,” officials are demanding, coercing, and strong-arming the private sector.
If Biden and his team are willing to use a failed mechanism with something as critical as pharmaceutical products, why would the Oval Office refrain from adopting price controls for food and energy?
Although the administration has yet to reveal its tactics for combating swelling food inflation, his team has discussed potential solutions to the energy crisis. In addition to begging the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, to increase production, the White House is considering tapping the more than 600 million barrels in the country’s strategic reserves. The president could also encourage greater domestic production and ease up regulations, but this would contradict his green energy initiative.
Could Biden channel the spirit of former President Richard Nixon and incorporate price controls into the Bidenomics experiment?
Richard Nixon
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In 1971, Nixon imposed 90-day wage and price controls across the economy, known as the Nixon Shock. Crude oil and gasoline were two of the commodities impacted the most as Nixon and his two successors, Gerald Ford and Jimmy Carter, kept them intact. This was a disastrous policy for the U.S. economy, resulting in a substantial slowdown in domestic crude output and oil exploration, relying on foreign markets to fill America’s gas tanks. When the Middle East was not pouring crude into the United States, shortages were commonplace, creating famous images of long gasoline lines.
Despite making a problem worse with their economic nostrums, the interventionists could not help themselves. In 1979, the Carter administration established prices for ten different types of crude oil, ranging from $6 to $15 a barrel. These mechanisms sent the U.S. energy industry into a depression. As a result, many oil wells were left to expire since companies did not have an incentive to maintain and exploit them, resulting in oil and gas firms investing in wells that hardly made a dent in the nation’s energy demand.
It was not until 1981 that then-President Ronald Reagan abolished the price controls, allowing the price of a gallon of gasoline to decline by 33% over five years. To be fair to Carter, he tried to eradicate the controls, too, but failed to do so. Nevertheless, this was a dark period for the country’s critical sector at powering the nation and ensuring everyone’s lights stay on and motorists’ tanks are full.
Indeed, economists engage in debates on a diverse array of issues. However, one topic has triggered near-universal agreement, price controls always lead to economic devastation.
Price Controls Always Lead To Socialism
The American people are urging the federal government to take action and manufacture prescriptions for the global supply chain crisis, skyrocketing inflation, and the upcoming energy calamity. The public might have good intentions, but Washington’s track record is abysmal and dangerous since it will likely lead the U.S. down the wrong road. Price controls are typically the go-to short-term answer to a challenge crippling the nation. With inflation being found in every sector of the U.S. economy, and concerns about the rising cost of living affecting Democrats’ 2022 mid-term election dreams, the Oval Office could consider this failed economic policy.
Conservatives and libertarians oppose this idea. However, progressives and the socialist left might cheer price controls on because, as eminent economist Ludwig von Mises wrote, they lead to socialism:
“The isolated measures of price fixing fail to attain the ends sought. In fact, they produce effects contrary to those aimed at by the government. If the government, in order to eliminate these inexorable and unwelcome consequences, pursues its course further and further, it finally transforms the system of capitalism and free enterprise into socialism.”
In the end, the Biden administration needs to get out of the way and allow the free-enterprise system to resolve the myriad of problems the state created in the first place.